Futures Point To A Flat Open
12/17/2004
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INTEREST RATES
The Treasury market fell sharply Thursday and
might have declined off better economic readings, the bounce in the Dollar or
because of concerns arising in the Government Agency market. In our opinion, the
main force driving the Treasuries over the last two weeks has been the
anticipation of intervention buying and therefore we give the Dollar action
yesterday, the nod as the main driving force in the break. Certainly, the
initial claims and ongoing claims readings posted some head turning declines but
according to statisticians, the claims readings were possibly influenced by
counter seasonal increases in the prior weeks and therefore the readings
yesterday, might simply have been a balancing act.
STOCK INDICES
Typically the stock market doesn’t perform well
from a consolidation pattern, especially after the market has forged a
significant run up off the early December lows. However, we can see the scope
for a positive session today, as German economic survey results showed a
significant rebound in an overnight release, and it would seem like the
merger/buyout activity will continue to provide periodic support. However, in a
negative note, the market has seen translations of the purported Bin Laden tape,
which seem to call for aggressive attacks on oil facilities and for Arab
fighters to attempt to send crude oil prices up to $100 a barrel.
DOW
The Dow continues to post new highs for the move and even managed to post
another new high for the move in the overnight action. In fact, the Dow hasn’t
consolidated like the S&P has over the last several sessions, and that might
give the Dow an edge in the action today. Near term critical support should be
respected at 10,687 with near term upside targeting seen up at 10,750.
S&P
As suggested before, the March S&P comes into the action this morning holding
within a consolidation pattern and typically the S&P seems to break down off
that type of formation. In other words, the S&P might have to correct and in a
sense, bring prices down to a level that buyers are attracted to the fray in
more significant numbers. However, seeing a muted inflation reading and positive
leadership from the Dow, might inspire the S&P and eliminate the need for a
correction. Near term corrective support comes in today at 1199.40 and
resistance is seen at 1210.90.
FOREIGN EXCHANGE
US DOLLAR
The action in the Dollar is partially disappointing
today, but the big rally yesterday really helps to unsettle the Dollar bears. On
the other hand, favorable European numbers this morning certainly undermine the
Dollar. While the policy speech by President Bush could have served to lift the
Dollar, (he promised fiscal restraint and budgetary progress) the European trade
is not going to give Washington the benefit of the doubt, until the change is
carved in stone. However, some US economic numbers Thursday were very impressive
but unfortunately the US economy also posted some offsetting readings.
Therefore, one really can’t expect the Dollar to garner support off US readings,
unless a muted CPI reading creates a furor. In the mean time, we continue to
look for a major bottom in the Dollar but realize that the current trading range
is bound by 82.86 and 81.49 and that the Dollar could see a 100 point break
without altering anything. The bears in the Dollar have to watch the post CPI
report reaction closely, as a trade back above 82.68 could signal a return to
82.90.
EURO
The Euro could have been driven sharply higher by
the revelation overnight that the Ifo survey showed a significant improvement.
Apparently Business sources saw much improved conditions in Europe, following
the sharp decline in energy prices and that optimism serves to offset the
slightly disappointing Euro zone factory output decline. However, the Euro zone
factory output readings were for October and that is getting to be pretty old
information. We see the near term trading range in the March Euro as 132.06 to
133.70, but a decline below 132.42 today could signal a quick decline to 132.00.
Continue to hold long term puts and assume that the trend is turning down, until
the March Euro manages a close back above 134.60.
YEN
While there continues to be significant concern
toward the Japanese economic track, the Nikkei managed a rather impressive
overnight rally and that could serve to firm up support under the Yen. However,
we still can’t come to the conclusion that the Yen is set to rally consistently,
unless the US economic outlook deteriorates significantly. In fact, seeing the
March yen slide back below 96.01 today could really begin to deflate the new
found bullish tilt in the Yen.
SWISS
What a difference a couple days makes, as the Swiss
had what appeared to be an exceptional chart setup and with the return to the
consolidation lows, following a strong attempt to rally, we have to think that
the bulls are on the ropes. In order to reconfirm a downtrend pattern, the March
Swiss will have to see a close below 86.40 today.
BRITISH POUND
While the Euro and Swiss are vulnerable on the
charts, the Pound isn’t showing the same type of breakdown. We see the near term
range in the Pound as 190.60 to 193.89, but we can’t rule out a near term slide
to the bottom of the consolidation.
CANADIAN DOLLAR
We continue to be bearish toward the Canadian but in
order to escalate the downside action, the March contract will have to manage a
close below 80.95, as that would be the lowest close since October 22nd.
METALS
OVERNIGHT
London Gold Fix $439.20 -$2.05 LME COPPER
STOCKS 55,050 metric tons -25 tons COMEX Gold stocks 5.639 ml +64,700 oz COMEX
SILVER stocks 104.5 ml -10 oz
GOLD
While the Dollar is back down, the action yesterday
went a long way in countervailing the build up of bearishness in the Dollar
early in the week. For the gold market, seeing a return back to the Thursday
highs in the Dollar, would not be a positive development because an extension of
the rally in the Dollar from yesterday could have sparked a wholesale
liquidation. In conclusion, the main thing driving gold is the Dollar, as the
hope for increased physical demand and inflation seems to have been moderated
significantly.
SILVER
The March silver market also stands just above
critical consolidation support on the charts around $6.68, with near term
consolidation resistance pegged at $6.93. Fortunately the December break has
leveled the net spec long position in silver and we suspect that the COT report
to be released after the close today, will show that the spec long has pulled
back from record levels. Silver continues to follow in the foot steps of gold
and gold is simply following the Dollar.
PLATINUM
After a massive range on Thursday, the platinum
market fell back down into the consolidation. However, the spec trade is
emboldened by the upside probe and another test of $843 could attract some
follow through buying. Forced into the market we would be a buyer of a break
down to $832.5 basis the January contract.
COPPER
The Chinese copper market was slightly lower
overnight and the early US action has pricing sitting just above the prior days
lows and that could propagate stop loss selling in the event that chart support
levels are violated. Shanghai copper stocks rose by 1,456 tons on the week and
that continues a pattern of slightly negative exchange stock fluctuations.
Therefore the market seems to be confronted with a slightly negative macro
economic outlook, but the market has recently shown the capacity to ignore a
number of negative developments.
CRUDE COMPLEX
The energy complex exhibited slightly volatile
trade action Thursday, but we suspect that part of the weakness was the result
of the overreaction in the prior day’s action. We also think that private tanker
tracker forecasts released during the session Thursday, served to pressure
prices as some forecasts suggested that OPEC exports managed to increase by up
to 250,000 barrels per day in the month of December. Another element sinking
prices Thursday, were suggestions that the falling Dollar was in fact serving to
knock down world energy demand, as the Dollar adjusted oil price was deterring
consumption.
NATURAL GAS
The natural gas market continued to recoil away from
the recent highs and did so in the face of a moderately impressive weekly
inventory draw of 61 bcf. However, with the annual surplus tally rising to 300
bcf, it’s understandable that the ultimate result from the inventory data
yesterday was for moderate profit taking. With low temps in the Midwest expected
to be in the low teens and possibly dipping into single digits this weekend, we
suspect that demand is set to ramp up and that should serve to increase the
weekly draw figures.